Search

 

Cablegate: Ecuador Economic News February 8 - 12, 2010

VZCZCXYZ0000
RR RUEHWEB

DE RUEHQT #0190/01 0491940
ZNR UUUUU ZZH
R 181938Z FEB 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 1007
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO

UNCLAS QUITO 000190

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EPET EC
SUBJECT: Ecuador Economic News February 8 - 12, 2010

REF: QUITO 154; 90 QUITO 816; 09 QUITO 1068

1. (U) The following is a periodic economic update for Ecuador
that reports notable developments that are not reported by
individual cables. This document is sensitive but unclassified.
It should not be disseminated outside of USG channels and should
not be posted on the Internet.

-------------

Highlights

-------------

-- Third Quarter 2009 GDP Growth of 0.26%; $332 Million Trade
Deficit for 2009

-- GoE Plan to Use Reserves to Stimulate Construction Sector
Falters

-- Consumer Credit Card Debt Increases during Economic Downturn

-- Fuel Smuggling Across Ecuador's Borders

--------------------------------------------- ----------------------
-------------------------

GDP Growth of 0.26% in the Third Quarter of 2009; Trade Deficit for
2009

--------------------------------------------- ----------------------
-------------------------

2. (SBU) Ecuador's Central Bank (CB) reported this week that
the Ecuadorian economy grew on a quarter-to-quarter basis by 0.26%
in the third quarter of 2009, but shrank 1.40% on a year-to-year
basis. Although minor, this growth rate breaks a recessive
economic trend after the Ecuadorian economy contracted by 0.25% in
the final quarter of 2008 and by 1.21% and 0.21% in the first and
second quarters of 2009, respectively. The CB did not change its
methodology in calculating these figures. According to CB
officials, it will start applying a new methodology with full year
2009 figures, due out by the end of March (ref A).

3. (SBU) While few private analysts appear to be publicly
questioning the accuracy of the CB's QIII GDP report, the third
quarter recovery does seem inconsistent with the rise in the
unemployment rate from 8.3% in the second quarter to 9.1% in the
third quarter of 2009. A number of local analysts point out that
given the growth rates registered in the first three quarters of
2009, the Ecuadorian economy would have to grow considerably in the
last quarter to achieve the CB's estimate of a GDP growth of 1% in
2009. Most local analysts expect Ecuador's economy contracted for
full-year 2009, as also expected by the IMF (-1%) and CEPAL
(-0.4%).

4. (SBU) Ten of fourteen economic sectors recorded growth
between the second and third quarters of 2009: construction
(2.11%); financial intermediation (1.11%); private households
(1.02%); commerce (0.75%); fisheries (0.53%); services (0.39%);
water and electricity (0.37%); transport (0.20%); public
administration (0.14%); and other GDP elements (0.75%). Four
sectors reported quarterly contractions: agriculture (-0.94%); oil
refining (-0.71%); manufacturing (-0.32%); and mining (-0.29%).
The third quarter contraction in the oil sector reflects a fall in
oil production since international oil prices recovered during that
period. On a year-over-year basis, eight economic sectors
contracted, including: commerce (-4.62%); manufacturing (-2.76%);
agriculture (-2.51%); and mining (-1.35%). The following sectors
grew on a year-over-year basis: water and electricity (5.49%);

construction (4.51%); public administration (3.27%); and transport
(1.95%). The CB also reported that internal demand in the third
quarter grew by 1.04% on a quarter-to-quarter basis, after
registering three consecutive quarters of contraction, with
investment increasing by 1%, household consumption by 0.48%, and
government expenditures by 0.14%.

5. (SBU) On the external side of the economy, the CB also
reported this week that Ecuador registered a trade deficit of $332
million for the full year 2009. 2009 exports declined 26% and
imports fell 20%. The decline in imports was mainly due to the
fall in internal demand that accompanied the QIV 2008 to QII 2009
recession and the balance of payments import restrictions the GoE
imposed in January 2009. Exports decreased in value mostly as a
result of reduced international oil prices (from an average of $83
in 2008 to an average of $56 in 2009) and a contraction of 6.1% in
the volume of oil exports.

--------------------------------------------- ----------------------
---------------

GoE Plan to Use Reserves to Stimulate Construction Sector Falters

--------------------------------------------- ----------------------
---------------

6. (SBU) On October 20, 2009, President Correa announced the
government's intention to repatriate up to $2.5 billion in
international reserves to provide financing to productive sectors
in Ecuador, with the broad goals of stimulating Ecuador's economy
and reducing unemployment levels (refs B, C). The GoE announced at
the time that it would begin by allocating roughly $600 million of
the repatriated reserves to support the construction sector.
Delays in the repatriation of the international reserves and
discrepancies about the risk of the investments in public banks led
President Correa to criticize Central Bank (CB) management,
prompting the mass resignation of CB staff in December 2009.
[Note: the repatriation of reserves is so far more rhetoric than
reality, as all it entailed initially was altering the accounting
of funds on the CB's balance sheet: shifting funds from the CB's
account with the Bank for International Settlements (BIS) to the
public banks' accounts with the CB. These resources remain
deposited in overseas accounts, mainly with the BIS, until the
public banks draw down on their CB accounts.]

7. (SBU) On December 12, 2009, interim CB President Diego Borja
announced the immediate repatriation of international reserves
totaling $864 million, with $400 million directed to Banco de la
Vivienda, and Banco del Pacifico for financing home mortgages and
about $200 million to the Ministry of Urban Development to finance
a $5,000 subsidy for purchases of homes valued at less than
$60,000. Separately, the Ecuadorian Social Security Institute
(IESS) agreed to provide an additional $200 million in financing of
home mortgages.

8. (SBU) As President Correa has commented a number of times in
recent public speeches, only a fraction of the promised resources
have reached the intended destination. Analysts believe the
stimulus' impact has been weakened by bureaucracy and economic
uncertainty, while GoE officials claim there are not many housing
programs ready to receive financing. Meanwhile, the public banks
have invested some of these resources in private financial banks,
which have increased their deposits as a result of the stimulus
plan. Also slowing new construction is the Ministry of Urban
Development's approval process that can take months to complete.
Lenders also claim that, although they are ready to create loans,
many builders do not provide the necessary documentation, or have
unrealistic income expectations. Banco del Pacifico was allocated
$200 million to increase lending to home buyers and builders, but
so far has only granted credits for $25 million. The Ecuadorian
Social Security Institute (IESS) has only approved 1 of 32 loan
requests. Even without these delays, potential homebuyers remain
reluctant to take on the substantial debt a home purchase would
represent.
E

--------------------------------------------- ----------------------
--------------

Consumer Credit Card Debt Increases during Economic Downturn

--------------------------------------------- ----------------------
--------------

9. (SBU) The growth in credit card debt in Ecuador slowed in
2009 to 8.6%, down from an average annual growth rate of 20% from
2000 to 2008. In 2009, credit card debt increased to $2.57
billion. Of the nearly 14 million people in Ecuador, 2.9 million
have a credit card, placing the average credit debt among credit
card holders at about $900 compared to $8500 in the US. Although
credit purchases for consumer goods such as appliances, computers,
clothing, toys, and jewelry decreased last year, credit purchases
for basic products and services at grocery stores and fast food
restaurants increased. The recent economic downturn also pushed
delinquency rates on credit cards from 3.8% in 2008 to 5.1% by the
end of 2009 (compare to 4.5% in the United States at end of 2009).

--------------------------------------------- --------

Fuel Smuggling Across Ecuador's Borders

--------------------------------------------- --------

10. (SBU) Subsidized fuel in Ecuador has attracted the
attention of opportunists along both its northern border with
Colombia and southern border with Peru, due to the wide disparity
in pump prices between Ecuador and its neighbors. While gasoline
and diesel in Ecuador sell on average for about $2.50 and $2.00 a
gallon, respectively, Colombians are paying in the range of
$3.40/gallon for gasoline and $2.90/gallon for diesel. Peruvians
living in Lima pay even higher prices, with gasoline roughly in the
$3.60 to $5.00 range (depending on octane level). The gap has
fomented a sizable black market for Ecuadorian fuel between the
Ecuadorian border city of Tulcan, and the Colombian city of
Ipiales, and the southern border with Peru is reportedly wide-open
(at least on the Ecuadorian side), with few obstacles to smuggling
of fuels or any other products. Media reports about activities on
the Colombian border allege that smugglers are using modified
vehicles to transport gasoline, diesel, and propane. Also
according to press reports, the provincial government of Carchi,
where Tulc????n is located, has initiated a program to reduce the
size
of the black market, now estimated to employ some 3,000 people.
HODGES

© Scoop Media

 
 
 
World Headlines

 

IPPPR: The Independent Panel Calls For Urgent Reform Of Pandemic Prevention And Response Systems

Expert independent panel calls for urgent reform of pandemic prevention and response systems The Independent Panel for Pandemic Preparedness and Response is today calling on the global community to end the COVID-19 pandemic and adopt a series of bold and ... More>>

NGO Coalition On Human Rights: Call For A Stop To Police Brutality In Fiji

A viral video has circulated online showing two police officers utilising disproportionate and excessive force in detaining the suspect, an individual half their size. In the video it shows the man’s head being pressed down on the ground, his arms being ... More>>

UN: India’s New COVID-19 Wave Is Spreading Like ‘Wildfire’, Warns UN Children’s Fund

7 May 2021 A new wave of COVID-19 infections is spreading like “wildfire” across India, leaving many youngsters destitute, the UN Children’s Fund UNICEF said on Friday. In the last 24 hours, India registered 3,915 coronavirus deaths and 414,188 ... More>>

Focus On: UN SDGs

UN: Economic Recovery Under Threat Amid Surging COVID Cases And Lagging Vaccination In Poorer Countries

New York, 11 May — While the global growth outlook has improved, led by robust rebound in China and the United States, surging COVID-19 infections and inadequate vaccination progress in many countries threaten a broad-based recovery of the world ... More>>

Study: Cut Methane Emissions To Avert Global Temperature Rise

6 May 2021 Methane emissions caused by human activity can be reduced by up to 45 per cent this decade, thus helping to keep global temperature rise to 1.5 degrees Celsius in line with the Paris Agreement on climate change, according to a UN-backed ... More>>

UN: Learning From COVID-19, Forum To Highlight Critical Role Of Science, Technology And Innovation In Global Challenges

New York, 4 May —To build on the bold innovations in science, technology and innovations that produced life-saving solutions during the COVID-19 pandemic, the UN will bring together experts to highlight measures that can broaden the development and deployment ... More>>